Starting to see signs of middle- and lower-income consumers getting squeezed: Liz Everett Krisberg

Key Concepts

• Consumer Spending Resilience: The ability of households to maintain spending levels despite economic pressures.
• Income Inequality in Spending: The divergence in spending habits between high-income and low-income demographics.
• Wage-Spending Gap: The disparity between wage growth and the rate of consumer expenditure.
• Credit Card Utilization: The percentage of available credit being used by consumers; a key indicator of financial stress.
• Revolvers: Consumers who carry a balance on their credit cards from month to month rather than paying them off in full.
• Discretionary Spending: Non-essential spending on items or services that are not required for basic living.

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1. Overview of Consumer Spending Trends

Bank of America Institute data indicates that U.S. consumer spending in April experienced its strongest growth in three years, with household card spending rising by 4.8% year-over-year. Even when excluding volatile gas prices, spending grew by 4.0%, marking an acceleration from the 3.6% growth observed in February and March. This suggests that the spending surge is broad-based rather than solely driven by inflation at the pump.

2. The "Uneven" Nature of Resilience

While the aggregate data is strong, Liz Everett Kreisberg, Head of the Bank of America Institute, emphasizes that this resilience is unevenly distributed:

• High-Income Consumers: Spending grew by approximately 5%, supported by wage growth of 6%. Their income growth is currently outpacing their spending, indicating a strong financial position.
• Low-Income Consumers: Spending grew by 3.1%, but their wage growth was significantly lower, ranging between 1% and 1.5%. This creates a "squeeze" where wage increases are failing to keep pace with expenditure.

3. Financial Buffers and Debt Management

To bridge the gap between income and spending, lower-income consumers are utilizing several financial buffers:

• Discretionary Pullback: Lower-income households are actively reducing non-essential spending.
• Credit Utilization: While aggregate credit card utilization remains at pre-pandemic (2010s) levels, "revolvers"—those who do not pay off their balances monthly—are seeing an uptick in utilization. While not yet at "dangerous levels," this indicates increased reliance on debt.
• Tax Refunds: Data shows that tax refunds have provided a temporary cushion. Of the refunds received by April, approximately 50% were directed toward savings, 25% toward debt repayment, and only 20% toward immediate spending.

4. Analysis of Monthly Spending Patterns

The report addressed concerns regarding a late-month dip in spending. While spending did decline in the final week of April, Kreisberg noted that this is a recurring, typical pattern observed in January, February, and March. She cautioned against interpreting this as a sign that consumers have "run out of money," as the decline was consistent with previous months.

5. Key Perspectives and Methodology

• Data Source: The analysis is derived from Bank of America’s internal data, which tracks nearly 70 million consumer and small business accounts in real-time.
• Expert Insight: Liz Everett Kreisberg highlights that while the consumer remains "resilient" overall, the divergence between income brackets is the most critical trend to monitor.
• Technical Clarification: "Credit card utilization" refers to the ratio of current credit card balances to total available credit limits. Kreisberg clarified that consumers are not yet hitting their credit limits, meaning they still possess available liquidity.

Synthesis and Conclusion

The U.S. consumer remains fundamentally resilient, supported by a strong labor market and healthy wage growth for high-income earners. However, the data reveals a growing vulnerability among lower-income households, whose spending is increasingly decoupled from their stagnant wage growth. While these consumers are currently managing the gap through discretionary spending cuts, debt, and tax refund buffers, the sustainability of this trend depends on future wage growth and the exhaustion of these temporary financial cushions. The Bank of America Institute continues to monitor these patterns as a primary indicator of broader economic health.